USD/CAD sellers attack 1.2600 despite downbeat oil prices, BOC, Fed in focus

• USD/CAD extends the previous day’s losses, drops towards intraday bottom of late.
• US dollar tracks downbeat Treasury yields amid pre-Fed anxiety.
• Oil prices struggle as IMF cuts global growth forecasts, Russia-Ukraine tussles pause.
• BOC is widely anticipated to maintain the status quo versus hawkish expectations from Fed.

USD/CAD remains pressured towards an intraday low of 1.2599 during the two-day downtrend amid early Wednesday in Europe.

In doing so, the quote benefits from the broad US dollar weakness while tracking the US Treasury yields.

The Loonie pair snapped a three-day uptrend the previous day as prices of Canada’s main export item, WTI crude oil rose the most in a week. Also favoring the USD/CAD sellers was the market’s indecision ahead of the monetary policy meetings by the Bank of Canada (BOC) and the US Federal Reserve (Fed).

Read: Bank of Canada Rate Decision Preview: No surprises for a 25bps rate hike

That said, the US Dollar Index (DXY) pulls back from the three-week top, marked on Tuesday, while easing to 95.95 at the latest.

US 10-year Treasury yields seesaw around 1.78%, being barely positive after declining for the last five days.

Prices of WTI crude oil, down 0.35% daily around $84.80, fails to respect the upbeat weekly inventory report by the American Petroleum Institute (API). That said, the
API Weekly Crude Oil Stock for the week end of January 21 flashed -0.872M figures versus the previous addition of 1.404M. The reason could be linked to the downbeat economic forecasts by the International Monetary Fund (IMF), as well as Ukrainian policymakers’ readiness to placate the tension with Russia.

To sum up, the USD/CAD pair fails to cheer the broad risk-off mood as the US dollar steps back ahead of the Fed’s likely hawkish verdict, considering firmer US inflation expectations, per the 10-year, breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. Also favoring the Fed optimists are fears of supply-chain constraints due to the Omicron.

Moving on, USD/CAD traders will pay attention to Fed Chair Jerome Powell as neither the US central bank nor BOC are expected to alter the current monetary policy settings. However, the US Federal Open Market Committee (FOMC) needs to confirm the March rate hike and/or balance sheet normalization to beat the pair bears.

Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities

Technical analysis

Failures to stay beyond the 100-DMA, around 1.2620 by the press time, direct USD/CAD prices towards the mid-January peak of 1.2570. However, the 200-DMA level of 1.2500 will challenge the pair’s further downside.

It’s worth noting that the latest peak of 1.2700 and the monthly low near 1.2450 act as additional trading filters.